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Events -- 2HKIAC/ ICCA –

HONG KONG SUMMIT 2015

HK45 PANEL DISCUSSION ON ANTI-SUIT INJUNCTIONS IN ASIA

LCIA/HKIAC SEMINAR - THE EMERGENCE OF CODES AND ETHICS

IN INTERNATIONAL ARBITRATION

SINGAPORE YSIAC CONFERENCE AND GAR LIVE

Case Review -- 11HONG KONG: A V B (UNREP., HCA 3550/87, 20 JUNE 2015)

HONG KONG: THE INCORPORATED OWNERS OF HAMDEN COURT V

MEGA MILES CONSTRUCTION COMPANY LIMITED (UNREP. HCCT 32/2014, 2 JUNE 2015)

From the Asian Map -- 15DUST FINALLY SETTLES

IN THE CIETAC RIFT

NEW JAPANESE ARBITRATION CASE LAW: THE OSAKA DISTRICT

COURT’S PRO-ARBITRATION RULING

One on One with... -- 20AN INTERVIEW WITH

TERESA CHENG SC

F O R E W O R DDear Readers,

As we mark the countdown to this month’s HK Arbitration Week and the 30th anniversary of the HKIAC, we look back at some of the important arbitration events which took place across the region this year.

In this edition, we will bring you reports on the ICCA/HKIAC Summit which was held in May as well as updates from Singapore on the YSIAC and GAR Live events which took place in June. Back in Hong Kong, the HKIAC also presented two important seminars of topical interest, namely, a HK45 seminar on anti-suit injunctions in Asia which follows the Hong Kong court’s first ever anti-suit injunction granted in support of arbitration and a HKIAC-LCIA seminar on the emergence of codes of conduct and ethics in international arbitration.

The present edition will also cover the latest developments in North Asia, ranging from the latest pronouncement of the PRC Supreme People’s Court on the CIETAC split to an arbitration-related judgment from Japan which reflects the pro-arbitration approach of the Osaka District Court as well as the court’s increasing sophistication and familiarity with international arbitration principles. We will also feature a number of pro-arbitration decisions from the Hong Kong courts.

We fittingly conclude this edition with an interview of HKIAC’s Chairperson Ms Teresa Cheng SC as she shares with us the highlights of her career in both the legal and public sectors, and her goals for the HKIAC.

Finally, a brief update on some changes to the editorial team. Ms. Felicia Cheng will be joining the editorial team, replacing Ms. Sheila Ahuja as co-editor, starting from this edition.

On behalf of the HKIAC & HK45, we would like to extend our heartfelt gratitude to Sheila for her leadership and unstinting generosity with her time in shepherding our newsletter through its first five editions. We have no doubt Sheila will continue to contribute to the newsletter in future editions through other capacities.

In the meantime, we hope you will enjoy this edition!

Best,

The HKIAC & HK45 Newsletter Editorial Team

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6TH EDITION : MAY - SEPTEMBER 2015

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News & ViewsHK45 / HKIAC News letter 6TH EDITION : MAY - SEPTEMBER 2015

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E V E N T SR E P O R T O N H K I A C / I C C A – H O N G K O N G S U M M I T 2 0 1 5 Reported by Kirtan Prasad, Allen & Overy

This year’s Hong Kong Summit (“HK Summit”), co-organised by the Hong Kong International Arbitration Centre (HKIAC) and the International Council for Commercial Arbitration (ICCA), took place on 13 May 2015 at the Hong Kong Grand Hyatt. In her welcome remarks, Teresa Cheng SC referred to a conversation that she once had about “how the world would look if the world map is moved 180 degrees from the one that we normally see, namely with the Pacific Ocean in the centre of the map.” She invited participants “to try and view and understand the topics that we are going to discuss through this prism, through this new dynamism of the economies, and of course through this new world map.” Indeed if one had to summarise the spirit of the 2015 HK Summit, it would be just that: re-thinking the contemporary challenges faced by international arbitration through the prism of the emerging world.

Session 1

What better place to start this re-think than the New York Convention. The first session for the day was a debate on the motion “This House Believes that the New York Convention Does More Harm Than Good to Developing Economies”. The speakers for the proposition were Makhdoom Ali Khan (of the Supreme Court of Pakistan) and Lucy Reed (of Freshfields Bruckhaus Deringer), while the speakers for the opposition were Adriana Braghetta (Vice President of ICCA) and Dominique Hascher (Supreme Judicial Court of France).

The debate showcased a very spirited exchange of views. With a rousing start, the proposition pronounced that “arbitrators’ [decisions] are not final because they are

infallible, but infallible because they are final”. They argued that the limited grounds to challenge the enforcement of awards impede capacity building in legal systems across the developing world. It was also said that the New York Convention perpetuates the perceived mediocrity of the courts of the developing world by taking away the more complex commercial disputes into the domain of international arbitration. According to the proposition, but for the New York Convention, many courts in the Global South (which typically refers to Africa, Latin America and developing Asia including the Middle East) would have vastly improved, both for the benefit of their own citizens and foreigners. Finally, the proposition questioned whether the New York Convention is truly democratic; today, most developing nations have no real choice but to accede to it, as it is no longer fashionable to remain an “outsider” to the Convention.

In response, the opposition recalled the very purpose of the New York Convention – to set uniform standards in a diverse world. They also noted how the Convention encourages judicial dialogue, for instance, between the courts that set aside and those that enforce. Further, since developing nations have often inherited out-dated legislation from colonial powers, the New York Convention improves governments’ awareness of the necessity to modernise their arbitration laws and to adapt legislation to the complexities of international arbitration in a global economy. The opposition stressed that the New York Convention increases the legitimacy of enforcing courts. Interestingly, they also observed that although Brazil’s arbitration regime was very similar to that envisaged under the New York Convention, it could not successfully pitch itself as a “safe place for arbitration” until it acceded to the Convention in 2002.

While the opposition ultimately proved victorious, there was little doubt that debating the virtues of the New York Convention through the perspective of the developing world brought to the fore otherwise overlooked issues.


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arbitration in the South. One commentator raised the interesting possibility of devising a system of standards and principles that are specific to South-South relations, akin to the Global System of Trade Preferences among Developing Countries initiative.

In all, this enlightening session highlighted that while trade in the Global South is forging ahead with the potential to impact the legal landscape, the legal fraternity has yet to catch up.

Session 3

Following these two sessions, participants were given the opportunity to attend one of two sessions: a series of three Young ICCA soapbox debates on transparency in international arbitration, or a session on whether “Anti-Corruption Investigations and Anti-Bribery Legislation Influence or Affect International Arbitration”.

The three motions for the soapbox debates explored the need for greater publicity in international arbitration through nuanced motions: (i) that there is a public interest in making international commercial arbitration proceedings public (speaker for the motion was Jern-Fei Ng of Essex Court Chambers, and against the motion was Rafale Llano Oddone of White & Case); (ii) that in the absence of a contrary party-agreement, commercial arbitral decisions and awards should be made public (speaker for the motion was Diego Brian Gosis of Gomm & Smith, and against was Ruth Stackpool-Moore of the HKIAC); and (iii) that proponents of confidentiality in international arbitration must be hiding something (speaker for the motion was Jelita Pandjaitan of Linklaters, and against was Garoar Vioir Gunnarsson of Reykjaviak University). The author did not attend this session, but reports on good authority that the incisive exchanges were filled with wit, banter, humour and good spirited sarcasm. If the post-conference

Session 2

The second session was on “New Regionalism and South-South Trade”. As the Global South is increasingly leaning inwards, the session sketched how the region stands to benefit a great deal from South-South trade (or trade between developing economies), as the future growth of the world economy will likely be propelled by the demographic power of consumers from the South. The commentators noted that despite increasing geo-political complexities, there is a move towards economic exchange and integration in the South, as, for example, in ASEAN. The growing influence of South-South trade on the legal landscape was illustrated through the expansion of regional development banks, regional trade agreements and new model BITs. The significant future impact of new initiatives (such as the One Belt One Road, the BRICS bank and the Asian Infrastructure Bank) on the international development architecture for this century was also discussed. Further, while there is growing resistance in the US and EU to the Transatlantic Trade and Investment Partnership and the Trans-Pacific Partnership, the commentators suggested that these negotiations represent merely one part of much larger trade and investment law programmes in China and the ASEAN. For instance, of the 16 states currently negotiating the Regional Comprehensive Economic Partnership, 10 are from the developing world. There were also discussions of the new India Model BIT and the model BIT proposed by the Southern African Development Community, which entail a markedly distinct approach from existing treaty practice.

Against this backdrop, the commentators explored the impact of the changing trade landscape on international arbitration. In particular, it was queried if there might be a correlation between development of free trade and the development of institutional frameworks in the South, especially the use of arbitration. Equally however, it was questioned whether the new economic power of the South has translated into any real impact upon international dispute resolution services. With the exception of Singapore, Hong Kong and Dubai, the commentators highlighted that the northern hemisphere is still seen as the preferred dispute resolution arena even in South-South transactions. It was also noted that while Asian institutions are growing, there is little, if any, uptake at their African counterparts. Indeed the under-representation of the South, in particular Africa, in the pool of arbitrators and arbitration counsel was observed, as was the need to build both capacity and increase exposure in international


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if a poorly financed government hospital demands free equipment from a medical equipment provider as a condition for engaging the provider on another supply contract? The discussion illustrated how the peculiarities of developing economies may require a more nuanced approach in tackling corruption.

Session 4

The final session for the day explored the legitimacy challenge to investment treaty arbitration. The key issues raised were the growing perception that investment arbitration is biased against developing countries, the view that investment treaties unduly interfere with the right of the state to regulate and the criticism that arbitrators with no public accountability should not be allowed to decide vital questions of national interest.

The discussion recognised that a core reason for the legitimacy crisis lay in the arbitrator appointment process, namely, the perception of repeat appointments of “the usual suspects” on ICSID tribunals and the lack of geographic diversity (i.e. inadequate representation from developing countries). While there was agreement that ICSID ought to take a more proactive role in encouraging appointments of a wider pool of candidates from the developing world, it was also well noted that law firms and counsel ought to make a conscious effort in this regard. One suggestion was that ICSID ought to issue guidelines on multiple appointments akin to the IBA Guidelines on Conflicts of Interest in International Arbitration. A more novel suggestion was the issuance of guidelines relating to the use of administrative secretaries. It was proposed that if an arbitrator is only able to serve in a high number of cases at the price of delegating essential duties to administrative secretaries, then that arbitrator ought to be replaced by someone available to dedicate more time to the case. A counterview was that the lack of diversity on ICSID tribunals was more perceived than real. For instance one speaker mentioned a study conducted a few years ago that found a “massive diversity” of about 42 nationalities on ICSID tribunals. In addition, it was said

chatter was anything to go by, the Young ICCA soapbox sessions appear to have scored the highest on the fun quotient.

The second session on the impact of corruption in International Arbitration was perhaps less lively in format, but no less engaging in content. The discussion highlighted that, across the developing world, corruption in poor governments remains perhaps the biggest impediment to sustainable economic development. In this context, two questions were raised: is it possible for violations of domestic anti-corruption legislation to influence the outcomes of international investment arbitrations and, if so, should that be the case?

On the first question it was observed that it is precisely in countries that score poorly for control of corruption or rank low on the Corruption Perceptions Index that businesses prefer arbitration to reliance on domestic legal systems. Conversely however, it was suggested that arbitration (in particular confidentiality in arbitration) offers a means to mask corruption or legitimise a contract that may have been obtained by the illegal conduct of one or both parties. There were said to be at least two aspects through which corruption could impact an international arbitration: corruption in the arbitral process itself and corruption as a substantive issue in dispute in the arbitration. While the first form of corruption is rare, it was noted that allegations of the second type are often raised by parties in a bid to avoid their contractual obligations, particularly before investment arbitration tribunals.

This lead to the second, more germane question: when should arbitrators engage in a finding of corruption? Given the recent trend that acknowledges the arbitrability of corruption allegations, it was argued that arbitrators should not shy away from making a finding of corruption when the facts disclose it. As international arbitrators are perceived to be more independent and professional, it was suggested that they might even be better positioned to deal with corruption allegations than prosecutors and judges in many developing countries. Equally however, it was queried if arbitrators are the best placed to make this finding as they do not have investigative resources of judiciaries such as the power to subpoena.

Apart from these issues, there was also recognition that a substantive finding of corruption is not without its complexities: which law should a tribunal apply to make a substantive finding of bribery and what is the standard of proof? While paying a government official a bribe to grant a licence may be an uncontroversial case of corruption, one speaker suggested that it may not be as black and white in other cases. For instance, would it be corruption


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that while issues of conflict should be guarded against, a certain degree of repeat appointments is an inevitable outcome of the need to appoint individuals with expertise; “nobody complains about repeat appointments of Lionel Messi when he plays for Barcelona”, went the argument. In addition to diversity, members of the floor also advocated a separation of roles between counsel and arbitrators in investment treaty cases. Even if a conscientious arbitrator could in fact distance himself or herself from their role as counsel, it was argued that the perception of bias would nevertheless exist. The commentators drew from the experience of the Court of Arbitration for Sport and the International Court of Justice where measures have been adopted to prevent, or at least discourage, simultaneous or successive appointments of agents and counsel as mediators/arbitrators and ad hoc judges respectively.

Another reason highlighted for the perception that investment arbitration is biased against developing states is the trepidation with which the EU and the US now view the inclusion of investor state dispute settlement in multi-lateral treaties. Some asked, “[i]s it cold feet or hypocrisy on the part of [developed states]?” Others questioned if it is in fact a condescending suggestion or a statement of fact that the judicial systems of some states are less able than others to independently enforce treaty protections. Cutting through the North-South divide, one speaker suggested that there was no need to impugn the judiciary of any state or question the quality of justice in state courts, in order to justify investment arbitration mechanisms; the need for a non-national neutral forum was justification enough.

The final aspect of this discussion focused on whether investment law is either substantively or procedurally biased against developing states. On the substantive front, it was argued that the system disfavours host states by according investors with treaty protections without extending equal rights for states to make counterclaims or independent claims. On the procedural front, it was highlighted that developing states that have not established the institutional capacity to represent themselves are at a procedural disadvantage. The delay caused by the lack of bureaucratic infrastructure in these states often results in the loss of important rights, such as that to appoint an arbitrator to the Tribunal. While the remedy to the substantive bias lay in states negotiating better protections for themselves, it was suggested that the procedural imbalance could be mitigated through training on best practices provided by international institutions and organisations to state agencies.

Conclusion

In sum, albeit touching on frequently discussed issues in international arbitration, the HK Summit demonstrated how a slight shift in perspective from First World to Third could shed new light on often overlooked problems and throw up innovative solutions all the same.

H K 4 5 P A N E L D I S C U S S I O N O N A N T I - S U I T I N J U N C T I O N S I N A S I A – 2 5 J U N E 2 0 1 5Reported by Vee Vian Thien and Dominic Afzali, Allen & Overy

Introduction

HK45 welcomed a panel of international arbitration practitioners to the HKIAC on 25 June 2015 to discuss anti-suit injunctions (“ASIs” and each an “ASI”) in Asia. A capacity crowd of practitioners, academics and students listened to, and participated in, the discussion. Moderated by Mr James Kwan (late of Baker & McKenzie), the panel was composed of Messrs Andrew Battisson (Allen & Overy), Antony Crockett (Herbert Smith Freehills), George Lamplough (Holman Fenwick Willan) and Paul Tan (Rajah & Tann).

Providing the impetus for the event was the continued prevalence of court proceedings launched by parties in breach of arbitration agreements in Asia. Indeed, as Mr Kwan noted in his introduction, the topic of the discussion was timely in light of the first ASI granted in support of an arbitration in Hong Kong.

Messrs Lamplough and Tan discussed recent ASI-related jurisprudence in Hong Kong and Singapore, respectively. Mr Battisson discussed ASIs in the context of emergency arbitrator provisions. Mr Crockett discussed ASIs granted by arbitral tribunals.

Recent ASI jurisprudence in Hong Kong

Mr Lamplough discussed a recent Hong Kong High Court


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case (Ever Judger Holding Co Ltd v Kroman Celik Sanayii Anonim Sirketi (HCCT 6/2015)).

By way of background, that case involved the transport of cargo by ship from China to Turkey. The bills of lading for the cargo incorporated an arbitration clause referring disputes to arbitration in Hong Kong. The cargo was found to be damaged upon arrival. The cargo owner (“Kroman”) commenced litigation in the Turkish courts against the ship owner (“Ever Judger”). Ever Judger filed a request for arbitration and applied to the Hong Kong courts for and obtained an interim ASI against the Turkish proceedings on an ex parte basis.

Kroman contested the continuing application of the interim ASI in proceedings conducted in the High Court. Mr Lamplough explained how the court found that, absent a significant evidentiary showing by a party resisting an ASI, the court would readily grant an ASI in support of an arbitration where foreign proceedings were brought in breach of an arbitration agreement. The court looked to English jurisprudence, among other authorities, in support of this presumption in favour of granting an ASI upon proof of a valid and binding arbitration agreement.

The court found two circumstances in which it could not grant an ASI: (1) where the claimant had taken too long to apply for the ASI and (2) where the foreign proceedings were too far advanced. In this regard, Mr Lamplough discussed some of the defences against the ASI brought by Kroman. These included an argument that Ever Judger had filed a defence in the Turkish proceedings and thus had submitted to the Turkish court’s jurisdiction. The court dismissed Kroman’s argument and accepted that Ever Judger had to submit a defence under Turkish procedural rules before it could challenge the Turkish court’s jurisdiction.

Mr Kwan asked Mr Lamplough what the source was for the High Court’s power to issue an ASI. Mr Lamplough explained that this was not a contested issue in the case. Nevertheless, the court pointed to two possible sources of its power to grant ASIs: (1) Section 45 of the Arbitration Ordinance (Cap. 609) and (2) Section 21L of the High Court Ordinance (Cap. 4). Both parties argued that the court’s power fell under the former. However, the court suggested that its power in that case derived from the latter. The court considered that Section 45 of the Arbitration Ordinance would apply in relation to ASIs to protect ongoing or contemplated arbitral proceedings, whereas at issue in that case was the protection of an arbitral agreement (i.e., a contractual right that was breached by launching domestic litigation in Turkey) which, in the court’s view, fell under Section 21L of the High Court Ordinance. Mr Lamplough was of the view the court took too narrow an interpretation of the wording “in relation to arbitral proceedings” in Section 45 of the Arbitration Ordinance. Nevertheless, he concluded that

on the whole this was a welcome decision both for the development of arbitration and law in Hong Kong.

Recent ASI jurisprudence in Singapore

Mr Kwan asked Mr Tan to explain the position in Singapore compared to the Hong Kong position that there must be strong reasons not to grant an ASI. Mr Tan traced the development of Singaporean jurisprudence on ASIs over a decade back to WSG Nimbus Pte Ltd v Board of Control for Cricket in Sri Lanka [2002] SGHC 104 . Mr Tan described how the same test that the Hong Kong court applied in the Ever Judger case applies in Singapore, and that the test was also borrowed from the same English authority. Effectively, if you persuade a Singapore court that there is an arbitration agreement, an ASI in its support will be granted almost as a matter of course.

Mr Tan explained that following the Nimbus case, there was a dormant period in the jurisprudence concerning ASIs. In 2013, the Singapore Court of Appeal raised the issue of ASIs in obiter dicta in relation to injunctions for the purposes of enjoining a party from actions inconsistent with a contract. (See Maldives Airports Co Ltd and another v GMR Male International Airport Pte Ltd [2013] 2 SLR 449.) The Court of Appeal referred to the court’s power to issue an ASI in support of arbitration as an example of one such injunction to protect contractual rights.

The Court of Appeal revisited ASIs in the case of R1 International Pte Ltd v Lonstroff AG [2014] SGCA 56. In that case, one of the parties launched proceedings in the Swiss courts in breach of an arbitration agreement. The other party initially obtained an interim ASI. The High Court subsequently set aside the interim ASI and rejected an application for a permanent ASI. The Court of Appeal overturned the High Court’s decision on consideration only of the facts. It left intact the High Court’s discussion of the sources of its powers under Singapore law in relation to ASIs. As with the Nimbus and Maldives cases, the court assumed that the power to grant interim ASIs derived from the Singapore International Arbitration Act (Cap. 143A) (“IAA”). The court in the R1 case considered that the IAA applied only to interim injunctions and not to permanent ASIs. Instead, the power to grant permanent ASIs derives from the court’s inherent powers under the Supreme Court of Judicature Act (Cap. 322).

Mr Tan noted the peculiar consequences of this jurisprudence: a court has to look to the IAA for its power for the purposes of granting an interim ASI, whereas the power to grant a permanent ASI derives from the court’s inherent powers. There are practical issues that relate only to interim ASIs under the IAA (which is based on the UNCITRAL Model Law):

i. First, the IAA only permits the courts to grant interim measures to preserve evidence or assets. The courts


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have thus stretched the construction of “assets” to include arbitration agreements, which Mr Tan described as a funny way to resolve the tension in the language of the Act.

ii. Second, once an arbitral tribunal is in place, there are restrictions on a party’s right to go to the courts for an interim ASI, namely that, to do so, the party has to obtain either the consent of the tribunal or the agreement of the opposing party.

Neither (i) nor (ii) above arises in connection with the inherent powers of the Singapore courts to grant permanent ASIs. This, in Mr Tan’s view, leaves a slight grey area in Singapore law in the split between interim and permanent ASIs.

ASIs and Emergency Arbitrator provisions

Mr Battisson introduced the topic with a brief history of the relatively new emergency arbitrator (“EA”) provisions. The ICDR promulgated the first EA provision in 2006, and the SCC, SIAC, ICC and HKIAC later followed suit. Around 70 reported EA applications have been made worldwide, about half of which were made at the SIAC. Mr Battisson said that SIAC’s heavy EA application load was possibly attributable to (1) the fact that SIAC’s EA provision has been in place since 2010 and (2) the nature of the parties before the SIAC. He said that while initially it appeared that such decisions were quite persuasive, lately the question of enforcement of such decisions is arising with greater frequency.

Mr Battisson mentioned two recent examples of EA orders:

i. 9 June 2015 – a district court in Kiev enforced the order of an EA enjoining the government of Ukraine from increasing royalties on gas production in relation to a tax dispute under the Energy Charter Treaty. The court had no trouble with the “finality” issue of such order under the New York Convention and found that it was enforceable under Ukrainian law.

ii. 17 June 2015 – in a dispute involving an ICC arbitration and a competing arbitration under the Construction Industry Arbitration Commission of the Philippines, the party that launched the ICC arbitration obtained an EA order requiring the Philippines arbitration to be dismissed or withdrawn. That order was ignored, and enforcement of the EA order was sought in Singapore under Section 12(6) of the IAA.

He went on to describe potential issues in relation to obtaining relief from an EA. For example, unlike domestic court proceedings, EA proceedings are generally not ex parte. All institutional rules (except for the SCC) require that notice be given to the other party. This is because ex parte arbitral proceedings could be found to violate certain requirements under the New York Convention

and thus render any award or order arising out of such ex parte proceedings unenforceable. Institutions may also take some time to appoint an EA (e.g., due to conflict checks), and thus an interim ASI ordered by an EA could take longer to obtain than one from a domestic court. Further, the effectiveness of an EA order to a large extent is contingent on voluntary compliance by the other side. This is balanced by the practical consequences of non-compliance, including damage to a party’s credibility with the main arbitral tribunal (once appointed) since most institutional rules require compliance with an EA order.

Mr Battisson detailed certain additional issues that arise in the context of enforcement of EA orders. Some jurisdictions, such as Hong Kong and Singapore, have promulgated legislative provisions that clearly provide for enforcement of EA decisions. Other jurisdictions, like the United States, have taken a broad reading of the New York Convention and would enforce EA decisions because they are taken as “final” decisions with respect to the issues before the EA.

ASI rendered by arbitral tribunals

As a matter of context, explained Mr Crockett, an ASI rendered by an arbitral tribunal presupposes that the relevant domestic court has refused to or is not empowered to stay proceedings in favour of arbitration. A classic example is the Indonesian courts. It is common for defaulting parties to an arbitration agreement to go to the Indonesian courts to start a claim to try to pre-empt any arbitration. Under Indonesian law, a party cannot obtain interim relief in the form of an ASI without first filing a civil claim, and that party cannot file a civil claim without breaching its arbitration agreement.

Further issues arise because Indonesian courts cannot stay their own proceedings. Rather, the party in breach of an arbitration agreement must withdraw the Indonesian proceedings. Not only does this affect the wording of a tribunal’s order granting an ASI, it also means that in practice a party likely has to meet a higher standard of proof for a tribunal to be satisfied that it should order a party to withdraw (rather than stay) the foreign proceedings.

While most of the panel’s discussions centred on ASIs to enjoin a party from breaching an arbitration agreement, Mr Crockett also covered ASIs in relation to foreign proceedings that aggravate a dispute, affect enforcement of an award or are vexatious and oppressive. He sets out an example of a case where an Indonesian party threatens to go to the Indonesian courts in breach of a SIAC arbitration clause, and the other party obtains an ASI from the Singapore courts in response to that threat. The Indonesian party then, during the constitution of the tribunal, brings a tort claim in the Indonesian courts against the parent company of the other party. The question is whether the tribunal can ask the Indonesian party to withdraw its case against


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a third party.

The English courts have found that they have jurisdiction to protect the contractual bargain of parties to an arbitration agreement even where third parties commence claims in other fora in circumstances where it seems clear that such claims will cause prejudice to the party applying for an ASI. In this regard, Mr Crockett noted a tribunal generally is not empowered to issue orders binding on third parties.

What is required to be shown to obtain an ASI against vexatious foreign proceedings (i.e., where two sets of proceedings will run the risk of inconsistent outcomes) includes the following factors:

i. a valid arbitration agreement – the tribunal will consider whether the claims in the foreign proceeding are within the ambit of the arbitration agreement. Authorities on construction of arbitration clauses suggest that a generous approach should be taken in relation to this factor. For example, English and Australian jurisprudence have established a presumption that parties would have wanted all their disputes to be dealt with in a single forum. The challenge in this respect is convincing a tribunal that it has the same power as a national court to issue such an ASI. There are a number of published ICC awards where tribunals have been persuaded to issue such ASIs.

ii. security for potential prejudice to the party subject to an ASI – in Mr Crockett’s experience, it is difficult for the party subject to an ASI to demonstrate prejudice consequent to an ASI. However, he noted that an undertaking or provision of security as to damages would be standard in domestic courts.

iii. general procedural economy – in Mr Crockett’s view, this factor has great appeal for tribunals. The argument here is simply that it is not in the interests of procedural economy to have more than one set of proceedings.

Conclusion

The event wrapped up with some follow-up questions for the panel. These centred mainly on compliance with and enforcement of ASIs. In respect of Hong Kong ASIs, as Mr Lamplough noted, it is too early to draw any conclusions given how fresh the Ever Judger decision is. Mr Crockett observed that a party faced with an ASI issued by a tribunal risks angering that tribunal by not complying the ASI with a resultant negative impact on that party’s merits arguments. Mr Battisson added that there is in general only so far that a tribunal can go with a truly recalcitrant party (e.g., to take such recalcitrance into account in an award for costs), given that the tribunal has a duty to discharge its function and settle the dispute fairly. However, he noted one of the advantages of arbitrations seated in Singapore and

Hong Kong is the availability of contempt proceedings in the event of non-compliance.

R E P O R T O N L C I A / H K I A C S E M I N A R - T H E E M E R G E N C E O F C O D E S A N D E T H I C S I N I N T E R N AT I O N A L A R B I T R AT I O NBy Joanne Lau, Allen & Overy

In recent years, the question of how conduct of counsel should be regulated in international arbitration has garnered much interest. Joining the debate, the LCIA and the HKIAC organised a seminar, “Party Representation: The Emergence of Codes and Ethics in International Arbitration”, on 16 June 2015. The three panellists looked at key issues and developments concerning the regulation of party representatives’ conduct and offered their insights on the way forward. The seminar, held at Allen & Overy’s Hong Kong office and moderated by Ms Teresa Cheng SC, Chairperson of HKIAC, attracted over 100 registrants and stimulated lively discussions.

Why is the topic debated?

Ms Cheng kicked off the evening with a warm welcome and an introduction of the topic, setting out the different aspects to be covered by the panellists.

The first speaker, Ms Sheila Ahuja, consultant at Allen & Overy, Hong Kong, set the scene by outlining the complexity of regulation of party representatives’ conduct in an international arbitration. She invited the audience to imagine a scenario where a Hong Kong counsel (also qualified in Singapore) and an English counsel (also qualified in France) take part in a London-seated arbitration under the LCIA rules before a tribunal composed of a German chairperson, and English and Singaporean co-arbitrators. Ms Ahuja explained, a number of rules may be relevant in the regulation of counsel’s conduct, including: (i) home bar rules of the counsel; (ii) rules of the seat or institutional rules; (iii) non-binding guidelines that are internationally applicable; and (iv) such rules as are determined by the tribunal to be applicable on a case-by-case basis.

Ms Ahuja referred to several pivotal cases on this topic. In the landmark case of Hrvatska v Republic of Slovenia (ICSID Case No. ARB/05/25), the tribunal relied on its inherent power to preserve the integrity of the arbitral proceedings to remove a counsel who practised in the same set of chambers as the president of the tribunal. Ms Ahuja suggested that tribunals have little guidance and noted that certain questions remain open, such as who should be the regulator of counsel’s conduct and whether


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tribunals should rely on their “inherent power” in regulating counsel’s conduct.

One further question raised by Ms Ahuja was whether there should be a system with multiple sets of rules or a uniform code instead. Noting that there have been a number of key developments in recent years, including the IBA Principles for the Legal Profession, the EC Code of Conduct, IBA Guidelines on Party Representatives and the LCIA rules implemented in 2014, Ms Ahuja said that the primary question was whether further rules, such as a uniform code of conduct, would simply add another layer of complexity.

Perspectives from the LCIA and the HKIAC

Interestingly, the 2014 LCIA rules incorporated provisions on conduct of party representatives, whereas the 2013 HKIAC rules did not do so. Dr Jacomijn van Haersolte-van Hof, Director-General of LCIA, and Ms Chiann Bao, Secretary-General of HKIAC, shared their views on the difference in approach.

What standard should be used to regulate counsel’s conduct?

Dr van Haersolte-van Hof said that the corollary of diversity in party representation is regulation of ethics and the 2014 LCIA rules were designed to provide the minimum core standards. She highlighted Articles 18.3 and 18.4 of the LCIA rules, which provide that any change in legal representation must be notified in writing to and is subject to approval by the Arbitral Tribunal, and the Arbitral Tribunal may withhold approval if it could compromise the composition of the Arbitral Tribunal or the finality of any award. Further, the Annex to the LCIA rules sets out the core substantive norms, for example, prohibiting legal representatives from knowingly concealing or assisting in the concealment of a document which is ordered to be produced.

On the other hand, Ms Bao argued that given the diversity of counsel and parties coming before the HKIAC, it was difficult to set a standard for regulating the role of counsel and remarked that the HKIAC can rely on the ‘home rules’ to regulate counsel’s conduct to some extent.

Should regulation of the conduct of counsel be dealt with by institutional rules or other legal instruments?

In Dr van Haersolte-van Hof’s view, the benefit of having provisions for regulating counsel’s conduct in the LCIA rules is that they set out core rules which are much more succinct and not as ambiguous as compared to soft law instruments such as the IBA Guidelines on Party Representatives. Parties are bound by the LCIA rules and the Annex if they opt in by contract.

Ms Bao stated that although the issue was robustly

debated during the drafting of the new HKIAC rules, unlike the LCIA, the HKIAC decided it was not the right time to introduce provisions on conduct of party representatives. Ms Bao explained that the overriding principle for the HKIAC rules was party autonomy, including the party’s right to appoint counsel. Ultimately, the “deal-breaker” for the HKIAC was that inclusion of express provisions for a tribunal to remove a counsel if they behave, in the tribunal’s view, inappropriately could not be reconciled with a party’s fundamental right to be represented by a lawyer of its own choice. Ms Bao noted that the HKIAC rules were more process-driven, rather than being focused on ethics. The new HKIAC rules therefore focused on adding value to certain areas of the arbitration process, such as the multi-party provisions and provisions on emergency arbitrators.

Would it be appropriate for tribunals to regulate conduct of counsel? If not, who should have the power to deal with this matter?

Dr van Haersolte-van Hof said the beauty of the LCIA rules is that tribunals can regulate and impose sanctions on counsel without having to approach an external body. Other than written reprimand and written caution, the LCIA rules provide that the tribunal may impose any other measure necessary for the proper conduct of the tribunal. On whether this encompasses referrals to relevant regulatory bodies, she considered it much preferable for arbitrators to have control over the procedure before them and to be able to impose sanctions “then and there” rather than having to approach a different authority.

In response to the question of how the rules on sanctions interact with the confidentiality of proceedings, Dr van Hoaersolte-van Hof noted that confidentiality of proceedings is another reason why sanctions should not be so extensive so as to allow tribunals to refer counsel to ethical bodies outside of the arbitration. She also pointed out that in her jurisdiction the sanctions normally would not be public.

Ms Bao seemed more receptive to the idea of having external bodies to regulate conduct of counsel and outlined several proposals that have been put forward. For example, the Swiss Arbitration Association has suggested a global regulatory body setting standards for the conduct of counsel and Mr Michael Hwang SC at the Queen Mary Lecture also suggested that independent committees be set up to regulate counsel’s conduct.

If sanctions are not made public, how does this affect or improve counsel’s conduct in general?

Dr van Haersolte-van Hof predicted that the effect of the LCIA rules will be nuanced and doubted there will be many decisions listing the sanctions in the near future. However, her view was that the sanctions give tribunals more explicit tools to regulate procedures and enable arbitrations to be run more effectively and efficiently. There may also be


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oblique references in procedural hearings, she said.

Ms Cheng raised the question of whether conduct and ethical practice would be improved if sanctions are not made public. In response, Dr van Haersolte-van Hof noted that there is no “naming and shaming” in her jurisdiction and that as the LCIA rules only set out the minimum core standards, there may be a need to consider other bodies if something more is required. Ms Bao considered that the sanctions may have deterrent value but added that it was unlikely that there can be a standardisation of behaviour if decisions are not public. Ms Ahuja questioned whether there should be degrees of severity, with the most serious breaches to be referred to a disciplinary body.

Ms Cheng added her final thoughts and rounded up the discussions, summarising the difficulties and exciting developments of the issue of regulation of ethics in international arbitration.

Final observations

At the reception after the seminar, attendees eagerly exchanged views on the various ideas explored in the seminar – can there be a uniform code of conduct for counsel, or is that simply another layer of complexity? Should tribunals be the regulators or should there be a separate independent committee? Are these best dealt with by institutional rules or by other legal instruments? If tribunals are to perform the role of regulating counsel’s conduct, should they be given more explicit powers? What is the effect of sanctions? The evening has certainly provided the attendees much food for thought as the debate continues.

R E P O R T O N S I N G A P O R E Y S I A C C O N F E R E N C E A N D G A R L I V EBy Gitta Satryani and Colin Ballantine, Herbert Smith Freehills

Introduction

Following the recent rebrand of Young SIAC to “YSIAC”, the inaugural YSIAC Conference was held at Maxwell Chambers in Singapore on 4 June 2015. The event was attended by approximately 200 delegates, including students, practising lawyers and in-house counsel from Singapore and beyond. With the theme, ‘The Dynamics & Challenges of International Arbitration – The Road Ahead’, attendees were offered the opportunity to hear about topical issues from a number of preeminent international arbitration figures, as well as to network with like-minded aspiring arbitration practitioners.

The YSIAC Conference was followed by the first GAR

Live event to be held in Singapore in four years, on 5 June 2015. This event also took place at Singapore’s Maxwell Chambers, and included three panel sessions, as well as an Oxford Union-style debate on the threat of the Singapore International Commercial Court to the Singapore International Arbitration Centre. Chaired by Mr. Alvin Yeo SC of WongPartnership LLP, together with Ms. Lucy Reed of Freshfields Bruckhaus Deringer, the event attracted representatives from top law firms and barristers’ chambers, in addition to senior in-house professionals.

YSIAC Conference

Joint Q&A session

The Conference opened with a welcome address by SIAC Chairman, Mr. Lucien Wong, followed by a Q&A session with SIAC Court President, Mr. Gary Born and Senior Minister of State, Ministry of Law & Ministry of Education, Ms. Indranee Rajah. All three spoke about the success of Singapore as a disputes hub, noting that Singapore is now the 3rd most popular arbitration seat globally, while SIAC is the 4th most preferred arbitral institution. Despite its success, opportunities and innovation are still abundant in Singapore, with both speakers urging delegates to make use of the newly-created Singapore International Commercial Court and Singapore International Mediation Centre.

Speed-Conferencing sessions

The morning progressed into a series of “speed-conferencing” sessions. Delegates were allocated 3 sessions out of a possible 10, each running for 20 minutes. Approximately 15-20 delegates were overseen by 2 co-moderators per session, debating topics such as the role of dispositive motions in international arbitration, the effectiveness of an emergency arbitrator’s orders, enforcement issues unique to Asia, the SIAC-SIMC Arb-Med-Arb Protocol, as well as the use of an expedited procedure by parties to arbitration agreements. Many participants were practising lawyers, who were able to bring their personal experiences of using many of these innovations to the group discussions.

Mr. Michael Hwang SC acted as supervising moderator of the 10 speed-conferencing sessions, overseeing a subsequent plenary session where the co-moderators reported back to the delegate body about the issues raised and debated in their respective sessions.

Panel sessions

After a buffet style lunch break, the afternoon was formulated around two panel sessions, each lasting for just short of 2 hours. Both panels had strong line-ups, with common law and civil law practitioners represented, including Ms. Lucy Reed, Mr. Davinder Singh SC, Mr. Lijun Cao, Prof. Bernard Hanotiau, Mr. Alvin Yeo SC, Ms.


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Claudia Annacker, Prof. Michael Pryles, Mr. Nish Shetty, as well as Mr. Michael Hwang SC.

The first session, moderated by Mr. Gary Born, included a discussion on the differences between advocacy in litigation and arbitration, as well as techniques for oral submissions and cross-examinations in international arbitration hearings. The second session, moderated by Dr. Christopher Thomas QC of the Centre for International Law (National University of Singapore), focused on career development, looking at the pros and cons of working for large law firms as opposed to boutique practices or arbitral institutions.

GAR Live

Panel sessions

Three panel sessions were held in total, with each lasting for approximately 90 minutes. The first session gave a broad overview of recent developments in arbitration, including the growth of the third party funding industry, as well as the development of treaty-based arbitration regimes across ASEAN. This was followed by the second session, which examined the non-interventionist reputation of the courts of Singapore, through the Astro v Lippo and Sanum v Laos decisions.

The third and final panel session concerned the development of arbitration in India. Particularly insightful was Chairman of the 20th Law Commission of India, Justice Ajit Prakash Shah’s review of potential changes

to India’s arbitration statute. Justice Shah was critical of attempts to impose strict time limits for arbitrators to arrive at a decision in commercial matters, as well as a proposal to cap the maximum fees that arbitrators may charge in a case. Ultimately, it was noted that India still lacks an “arbitration culture,” which cannot be plugged by statute.

Oxford Union-style debate

The panel sessions were followed by a debate on whether the newly-established Singapore International Commercial Court poses a threat to the continued success of the Singapore International Arbitration Centre. Differences of view emerged over comparisons between confidentiality, efficiency, and cost in the two forums. Prof. Michael Pryles of 20 Essex Street, Ms. Rashda Rana SC of 39 Essex Chambers, and Mr. Eun-Young Park of Kim & Chang as judges of the debate, ultimately decided that the Singapore International Arbitration Centre serves a unique and distinct purpose, and is not at risk of decline.

Conclusion

Both events ended with drinks and nibbles – the YSIAC Conference at the Sofitel So, and GAR Live at The China Club – where delegates overwhelmingly agreed that both events were highly rewarding. Many expressed that they look forward to attending the next YSIAC Conference, which is scheduled to be held at some point in 2017, as well as future GAR Live events, such as GAR Live Hong Kong in October 2015.

C A S E R E V I E WH O N G K O N G : A V B ( U N R E P. , H C A 3 5 5 0 / 8 7 , 2 0 J U N E 2 0 1 5 ) - C O U R T S A V E S D E F E C T I V E A W A R D F R O M B E I N G S E T A S I D E By Andrew Chin, Baker & McKenzie

Republished from http://www.globalarbitrationnews.com

Notwithstanding a clear breach of natural justice, a HKIAC award narrowly avoided the cruel fate of being set aside when the Hong Kong court remitted the award back to the Tribunal for the breach to be cured.

The recent Hong Kong Court of First Instance case of A v B (HCCT 40/2014), decided on 20 June 2015, once again shows the arbitration friendly attitude of the Hong Kong courts in setting aside arbitral awards only in the last resort.

Facts

A (a PRC company) entered into a Development and Sales Agreement (“Agreement”) with B (a Cayman Islands company) for the joint development and sale of security solutions for various goods (the “Products”). Under the Agreement, B was to pay the fees for the development of security products developed by A and purchase the Products. B complained about A’s poor performance and sought to recover the money paid to develop and then buy the Products. A denied B’s allegations and sought payment of the outstanding balance of the development fees and purchase price for the Products.

The dispute between the parties was referred to HKIAC arbitration on 18 February 2011. The Tribunal published the Award in June 2014, upheld B’s claims and dismissed A’s counterclaim. This was because the Tribunal found that A had failed to deliver Products that complied with the contractual specifications. Unfortunately, the Award

http://www.globalarbitrationnews.com


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did not address A’s argument that B’s claims were contractually time barred (“Limitation Defence”), which A had put before and argued before the Tribunal.

Hence, A applied to set aside the Award in September 2014 because the Tribunal had failed to consider the Limitation Defence, so it would be contrary to public policy to enforce the Award. The setting aside application was heard by Mimmie Chan J on 20 May 2015.

Court’s Decision

B argued that the Tribunal must be taken to have implicitly rejected the Limitation Defence, so the Limitation Defence was dealt with and enforcement of the Award would not be contrary to public policy. B’s argument ran as follows.

i. There is no need for the Tribunal to give detailed reasons in their Award for rejecting the Limitation Defence. This is because an arbitration is private and confidential, so the Award is only meant to be read by the parties who would already be familiar with the background and how the issues have been argued.

ii. Hence, as long as the Parties can understand from the Award how the Tribunal reached its conclusions on a particular issue, the reasons in the Award do not have to be elaborate or lengthy.

Mimmie Chan J therefore reviewed the Award and found that the reasons set out in the Award were insufficient to enable A to understand how or why the Limitation Defence was rejected, which contrasted with the meticulous way in which the Tribunal dealt with the other issues.

Public Policy

Her Lordship then had to consider whether enforcement of the Award in these circumstances would be contrary to public policy. In this regard, she noted that such public policy:

i. must be narrowly construed; and

ii. would be breached only “where there is a substantial injustice arising out of an award which is so shocking to the court’s conscience as to render enforcement repugnant.”

In the context of natural justice, Her Lordship referred to similar English case law and held that “[i]t is fundamental to concepts of fairness, due process and justice, as recognised in Hong Kong, that key and material issues raised for determination, either by a court or the arbitral tribunal, should be considered and dealt with fairly.”

Applying the above principles, she held that the Limitation Defence was a material issue which could have rendered the outcome of the Award materially different and the Tribunal’s failure to either consider it or explain how it was

dealt with was unfair to A and caused a real risk of injustice.

The public policy ground was therefore established since there was sufficient injustice arising out of the Award, which cannot be overlooked by the Court’s conscience and that enforcement of the Award would offend the Court’s notions of justice.

Setting Aside or Remission

However, this was not the end of the matter. Under the Arbitration Ordinance (Cap. 609), Her Lordship had two ways to deal with the breach of public policy:

i. set aside the Award; or

ii. where appropriate and so requested by a party, suspend the setting aside proceedings to give the Tribunal an opportunity to resume the arbitration and/or take such corrective action to eliminate the causes of the breach of public policy.

A objected to the suspension of the setting aside proceedings and asked for a setting aside of the Award instead because:

i. it had lost confidence in the Tribunal’s ability to grapple with the key issues;

ii. the Tribunal cannot reasonably be expected to have a clear recollection of the arguments since the hearing took place many months back; and

iii. the Tribunal has already made up its mind on all the issues and it would be impossible for the Tribunal to change its mind now.

Her Lordship rejected all of A’s arguments and held that the setting aside proceedings would be suspended for 90 days.

i. The Limitation Defence is a separate and independent issue, so there is no risk of pre-judgment or bias by the Tribunal. Also, neither party had suggested that the Tribunal, who is an experienced professional, was biased or had misconducted himself.

ii. The Award is set out in 126 pages which recount the background facts, issues raised and evidence in detail, so it would be easy for the Tribunal to recall the arguments made by the Parties.

Comments

There are various observations arising from this case which the arbitration community can learn from.

Section 69 of the Arbitration Ordinance (Cap. 609) states (in part) that:

“(3) Unless otherwise agreed by the parties, a


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party, with notice to the other party, may request, within thirty days of receipt of the award, the arbitral tribunal to make an additional award as to claims presented in the arbitral proceedings but omitted from the award. If the arbitral tribunal considers the request to be justified, it shall make the additional award within sixty days.”

There was unfortunately no discussion on whether A had availed itself of its rights under Section 69 to ask the Tribunal to address the Limitation Defence. If A had done so, the time and costs of the setting aside proceedings could easily have been saved.

Given the arbitration friendly approach of the Hong Kong courts, it is suggested that the courts should not entertain an application to set aside an award unless the applicant first avails itself of its statutory rights to address any breaches of the arbitral procedure or natural justice. Rather, the fact that an applicant had not availed itself of such remedies should be a strong factor weighing against setting aside an arbitral award.

This case is also a clear illustration of how the Hong Kong court strove to uphold the integrity of the arbitration process, which should discourage setting aside applications unless the applicants have extremely strong grounds. This approach should give confidence to arbitration users that they do not have to endure follow up court proceedings before they can enjoy the fruits of an arbitration victory.

H O N G K O N G : T H E I N C O R P O R AT E D O W N E R S O F H A M D E N C O U R T V M E G A M I L E S C O N S T R U C T I O N C O M P A N Y L I M I T E D ( U N R E P. H C C T 3 2 / 2 0 1 4 , 2 J U N E 2 0 1 5 ) By James MacKinnon, Herbert Smith Freehills

Introduction

Rejecting the attempted set aside of an interim award on jurisdictional grounds, Mimmie Chan J has delivered a common-sense decision reaffirming widely accepted arbitral and court practice on the broad construction of arbitration agreements. The judge held, in a decision dated 2 June 2015, that a sole arbitrator was correct in finding that he had jurisdiction and rejected the applicant’s argument that it was beyond the scope of the arbitration agreement for a sole arbitrator to decide upon the validity of the contract. This judgment is consistent with leading authorities in other common law jurisdictions that support arbitration as a “one stop shop” dispute resolution mechanism.

Background

The dispute in question arose out of a contract under which the incorporated owners of a residential building complex (the Plaintiff in the Hong Kong Court setting aside proceedings, and Respondent in the arbitration) (the “Owners”) engaged the Defendant (a construction services company, and Claimant in the arbitration) (the “Contractor”), to carry out renovation, repair and maintenance works on the building.

The Owners selected the Contractor to carry out the necessary works, and further resolved to authorise the Chairman, Vice-Chairman, Treasurer and Secretary of the Management Committee of the Owners (“Office Bearers”) to sign all contracts with the Contractor. However, in a subsequent meeting, the Management Committee agreed to “temporarily suspend” the signing of the contract. Despite this, a contract was subsequently signed by the Contractor and the Office Bearers.

When the Contractor’s staff members arrived at the residential complex to commence works some weeks later, they were prohibited from entering, with the Owners expressing resolve to terminate the contract. As a result, the Contractor commenced arbitration proceedings, with the subsequently appointed sole arbitrator determining as a preliminary issue in an interim award on Jurisdiction (“Award”) that he had jurisdiction to decide upon the validity of the contract. The Owners applied to the Court to challenge the Award of the arbitrator.

Issues and Decisions

Mimmie Chan J framed the decision around three issues, each of which will be discussed below.

Issue 1: Authority to sign the contract

The first issue was principally one of fact – whether a contract was formed between the parties. The Owners argued that the Office Bearers did not have authority to sign the contract. As such no contract came into existence, and therefore the arbitrator did not have jurisdiction to rule on the validity of the contract (as no arbitration agreement was created).

The Court found that a contract was created between the parties. Mimmie Chan J held that the Office Bearers were agents of the Management Committee and the Owners, and had the usual and apparent authority of the Management Committee to collectively sign contracts in the name of the Owners. This extended to the signing of the contract for the relevant works in the present dispute.

Issue 2: Scope of the arbitration agreement

The Owners further argued that the scope of the arbitration agreement did not extend to a dispute over whether the


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contract actually existed, and therefore the sole arbitrator did not have jurisdiction. The arbitration agreement stated as follows:

“… any question concerning the interpretation of the contract or relating to the contract, any dispute or difference … shall be referred … for arbitration …”

The Owners relied on an extract from Longmore LJ’s judgment in the English Court of Appeal’s judgment in Fiona Trust and Holding Corp & Others v Privalov & Ors [2007] EWCA Civ 20). The Owners argued that Longmore LJ’s judgment at paragraph 18 supported its position that the phrases “any dispute arising out of” or “arising under” a contract, and “all disputes in relation to or in connection with the contract”, meant that the arbitration agreement does not cover disputes as to whether there was a contract between the parties.

Mimmie Chan J rejected the Owners’ argument, drawing upon a range of well-known judgments and eminent commentaries, not least the House of Lords’ (as it was then) judgment in the Fiona Trust case (the case name changing to Fili Shipping Co Ltd and Others v Premium Nafta Products Ltd and others [2007] UKHL 40). In line with the position generally accepted amongst practitioners, and in line with existing Hong Kong law (see Adorn Workshop Ltd v Steicke David Paul [2010] HKEC 244 at [12] (Mimmie Chan J)), Mimmie Chan J found that the arbitration agreement, does cover disputes as to the contract’s validity, on the basis that parties are presumed to want a “one stop shop” for the resolution of disputes between them, unless they clearly express a contrary view. She held that the sole arbitrator was therefore acting within his jurisdiction in handing down an interim award on this issue.

Mimmie Chan J referred both to Longmore LJ’s Court of Appeal judgment in the Fiona Trust case (paragraph 17), and also Lord Hoffman’s leading judgment in the House of Lords:

“In my opinion the construction of an arbitration clause should start from the assumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal. The clause should be construed in accordance with this presumption unless the language makes it clear that certain questions were intended to be excluded from the arbitrator’s jurisdiction.” (emphasis added)

Mimmie Chan J further stated that “even in the case of Fiona Trust cited by Mr Chan SC, the Court held that a dispute whether the contract could be set aside or rescinded for alleged bribery did fall within the arbitration clause on its true construction” (emphasis added).

The Court also noted Gary Born’s International Commercial Arbitration, Vol 1 International Arbitration Agreements, 2nd edition, paragraph 9.02 [A] at p 1319:

“In many jurisdictions, courts hold that the parties’ intentions, in concluding an agreement to arbitrate in an international commercial setting, are presumptively to resolve all disputes related to their business relationship in a single, centralized proceeding, rather than in separate and potentially inconsistent proceedings”

With these passages in mind, Mimmie Chan J held that:

“In essence any dispute or difference concerning the interpretation of the Contract and any question relating to or in connection with the Contract are to be referred to arbitration. A dispute or difference as to whether the Contract has binding effect on the [Owners], or is in existence, relates to the Contract and is within the scope of the Arbitration Clause.”

Mimmie Chan J therefore found that it was the intention of the Owners and the Contractor, as reasonable commercial parties acting in good faith, to have one tribunal deal with both the question of the existence and binding effect of the contract, as well as any further disputes as to the execution of the relevant works. If this was not their intention, not only should the parties have expressly provided as such, but the parties would be subjected to multiple proceedings with extra costs, longer delays, and the risk of inconsistent results.

The Court also noted the doctrines of Kompetenz-Kompetenz and separability, given effect by Article 16(1) of the Model Law and section 34 of the Arbitration Ordinance (Cap. 609). In particular, it noted the Model Law’s reference that a tribunal may rule on its own jurisdiction, “including any objections with respect to the existence and validity of the arbitration agreement”.

On these grounds, Mimmie Chan J found that the arbitration clause extended to the dispute between the parties as to whether or not the contract existed.

Issue 3: Application being out of time

The Court also discussed whether the application brought by the Owners was out of time, and gave useful guidance as to the timing of making an application under section 34 of the Arbitration Ordinance. Section 34 of the Ordinance, adopting Article 16 of the Model Law, notes that a party may only request the Court to decide on jurisdiction “within 30 days after having received notice of the arbitrators’ ruling” (art 16(3) – emphasis added). However, Order 73 of the Rules of the High Court (Cap. 4A) uses different language, where the time limit is “30 days after the award is delivered” (emphasis added).


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Mimmie Chan J stated that under Article 16 and section 34, parties have 30 days from their actual receipt of notice of the ruling made by the arbitrator, to apply to the Court. Mimmie Chan J stated that the meaning of “delivery” in Order 73 (found to be not applicable in this application) meant the time when judgment had been pronounced or handed down for collection, irrespective of the parties’ actual notice of the judgment. As Article 16 and section 34 did not include the word “delivery”, Mimmie Chan J held that a party had “30 days from their receipt of notice of the ruling made by the Arbitrator in the Award to apply to this Court under Article 16(3)”.

Applying this to the facts, although notice was given by the arbitrator on 26 May 2014 that his award was ready for collection, the parties actually collected the award on 9 June 2014. This meant that the Owners had until 9 July 2014 to make their application, and in fact did so on 7 July 2014, which was found to be in time.

Conclusion

Finding in favour of the Contractor on all three issues outlined above, the Court dismissed the application to set aside the Award, and found that the arbitrator did indeed have the jurisdiction to issue an interim award on the validity of the contract and his own jurisdiction. The Court further made an order that the costs of the application to set aside be paid by the Owners to the Contractor, on an indemnity basis.

Comments

In respect of the Owners’ arguments as to the arbitrator’s ability to rule on his own jurisdiction and the construction of an arbitration agreement, Mimmie Chan J’s decision shows a continuing recognition by the Hong Kong courts of widely held arbitral practice on this subject. Her decision also shows ongoing support by the Hong Kong courts of arbitration as a dispute resolution mechanism, accepting the position described by Lord Hoffman in Fiona Trust, as well as in Born, that arbitration should generally act as a “one stop shop” for all disputes arising “out of”, “under” or “in relation to” a contract. It is unclear to the author why the Owners put forward a legal argument that flew in the face of such accepted arbitral theory (not least relying on the Court of Appeal judgment in Fiona Trust, rather than on the prominent House of Lords decision), and it is to be commended that Mimmie Chan J roundly dismissed this argument.

In addition, whilst it is usual for a Hong Kong court to order that the party bringing a failed application is to pay the other side’s costs on an indemnity basis, Mimmie Chan J’s order for indemnity costs in this case is a reminder of the financial risks faced by parties when bringing set aside applications in Hong Kong (especially when the legal arguments made in support of such an application are dubious).

F R O M T H E A S I A N M A PD U S T F I N A L LY S E T T L E S I N T H E C I E TA C R I F TBy Friven Yeoh, Desmond Ang and Yan Zhang, O’Melveny & Myers

The Supreme People’s Court of the PRC has issued definitive guidance, taking effect on 17 July 2015, which aims at ending any remaining uncertainty over jurisdictional issues arising from the recent CIETAC split.

Introduction

The controversial revisions to the arbitration rules of the China International Economic and Trade Arbitration Commission (“CIETAC”) in May 2012, which led to CIETAC’s former Shanghai and South China sub-commissions declaring their respective independence from CIETAC in August 2012, raised considerable uncertainty as to where disputes referred to these former sub-commissions should be heard. Adding to the confusion, the South China sub-commission rebranded itself as Shenzhen Court of

International Arbitration, also known as the South China International Economic and Trade Arbitration Commission (the “SCIA”) on 22 October 2012, and the Shanghai sub-commission changed its name to Shanghai International Arbitration Commission, also known as the Shanghai International Economic and Trade Arbitration Commission (the “SHIAC”) on 8 April 2013. Since then, CIETAC and SHIAC/SCIA have been engaged in a jurisdictional turf war over the administration of disputes arising from agreements that call for arbitration before the CIETAC Shanghai/South China sub-commissions.

As a result, a number of cases have come before the people’s courts concerning the validity of arbitration agreements referring disputes to the CIETAC Shanghai or South China sub-commission and the enforceability of SHIAC/SCIA awards. To ensure consistency in judicial practice, the Supreme People’s Court of the People’s Republic of China (the “SPC”) issued a notice (“Notice”) on 4 September 2013 requiring lower courts to report to the SPC prior to making a decision in cases in which CIETAC’s Shanghai/South China sub-commissions had been involved. The full name of the notice is “Notice of


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the SPC on Issues concerning the Proper Trial of Cases Involving Arbitration-Related Judicial Review”. However, this Notice did not provide any clear guidance and, following the issuance of the Notice, there were no publicly available court rulings on these issues until the end of 2014/early 2015.

Against this backdrop, the Shanghai Higher People’s Court, the Higher People’s Court of Jiangsu Province, and the Higher People’s Court of Guangdong Province requested judicial assistance from the SPC regarding issues involving the CIETAC split. In response, the SPC published a “Reply of the SPC to the questions of Shanghai High People’s Court etc. on Judicial Review over Arbitral Award of the CIETAC and its original sub-commissions” (the “Reply”) on 15 July 2015, which was passed at the 1655th meeting of the Judicial Committee of the SPC on 23 June 2015. The Reply took effect on 17 July 2015.

Key provisions of the Reply are summarised below.

1. CIETAC’s Jurisdiction vs. SHIAC or SCIA’s

Arbitration agreements entered into BEFORE name change of the sub-commissions

Either SHIAC or SCIA (as the case may be) shall have jurisdiction over disputes submitted under an arbitration agreement designating either “CIETAC South China sub-commission” or “CIETAC Shanghai sub-commission” as the arbitration institution if the agreement was entered into by the parties prior to the former Shanghai and South China sub-commissions changing their respective names. Any application to invalidate the arbitration agreements, or to set aside or resist enforcement of the arbitral awards based on SHIAC or SCIA’s lack of jurisdiction, shall not be supported by the people’s courts in China.

Arbitration agreements entered into ON OR AFTER name change of the sub-commissions

CIETAC shall have jurisdiction over disputes submitted under an arbitration agreement designating “CIETAC South China sub-commission” or “CIETAC Shanghai sub-commission” as the arbitration institution if the agreement was entered into by the parties (i) on or after the date when the relevant sub-commission changed its name and (ii) prior to the effective date of this Reply. However, if one party filed an arbitration at SHIAC or SCIA and the respondent did not raise any objection to the jurisdiction of SHIAC or SCIA (as the case may be) during the course of the arbitral proceeding, any application to set aside or resist enforcement of the arbitral award based on SHIAC or SCIA’s lack of jurisdiction also shall not be supported by the people’s courts in China.

Arbitration agreements entered into on or after the effective date of this Reply

CIETAC shall administer any disputes submitted under

arbitration agreements entered into on or after the effective date of this Reply (i.e., 17 July 2015) designating “CIETAC South China sub-commission” or “CIETAC Shanghai sub-commission” as the arbitration institution.

2. Seeking Judicial Assistance

The Reply further states that where (i) a claimant has requested the arbitral institution to determine its jurisdiction over the dispute when submitting the dispute to arbitration; (ii) the arbitral institution has confirmed the validity of the relevant arbitration agreement and its jurisdiction over the matter; and (iii) subsequently the respondent requests a people’s court to rule on the validity of the arbitration agreement prior to the first hearing held by the arbitral tribunal, such court shall accept the case and make a ruling.

This contrasts with Section 3 of the “1998 Reply by the SPC Regarding Several Issues Relating to the Validity of Arbitration Agreements”1 (the “1998 Reply”) and Section 13(2) of the “2006 Interpretation of the SPC concerning Some Issues on Application of the Arbitration Law of the People’s Republic of China”2 (the “SPC Interpretation”), both of which generally state that (i) any decision made by the arbitral institution in respect of its own jurisdiction shall be final, and (ii) if a party applies to a court to determine the validity of an arbitration agreement or to set aside an arbitral award after such arbitration institution’s decision has been made, the court should dismiss such application.

The Reply makes it clear that arguments advanced by the claimant or the arbitral tribunal pursuant to Section 3 of the 1998 Reply or Section 13(2) of the SPC Interpretation in respect of cases affected by the CIETAC split shall not be supported by the people’s court.

3. The Reply has no retrospective effect in relation to cases accepted prior to the effective date of the Reply

Section 3 of the Reply clarifies that Section 1 of the Reply shall not have retrospective effect over cases already accepted by the relevant arbitral institutions. Thus, even if CIETAC, SHIAC, or SCIA had assumed jurisdiction over

1 Section 3 provides that, in a situation where parties disagree on the validity of the arbitration agreement, and one party seeks confirmation from an arbitral institution on the validity of the arbitration agreement and the other party requests a people’s court to confirm the invalidity of the arbitration agreement, if the arbitral institution has accepted the request ahead of the people’s court and has made its decision, the people’s court shall not accept the request. However, if the arbitral institution has accepted the request ahead of the people’s court but it has not made its de-cision, the people’s court shall accept the request. At the same time, the people’s court shall notify the arbitral institution to terminate the arbitration.

2 Section 13(2) provides that, pursuant to Article 20(2) of the Arbitration Law of the People’s Republic of China, a people’s court shall not accept a request by a party to confirm the invalidity of the arbitration agreement if such party has not challenged the validity of the arbitration agreement prior to the first hearing of the arbitral tribu-nal. The people’s court shall not accept a request by a party to confirm the validity of the arbitration agreement or to set aside the arbitral award if such request has been made after the decision of the arbitral institution on the validity of the arbitra-tion agreement has been made.


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any dispute prior to the effective date of this Reply in a manner contrary to Section 1, Section 3 states that the people’s courts shall not support any application to set aside or resist enforcement of an arbitral award based on the lack of jurisdiction of the relevant arbitral institution.

4. Concurrent jurisdiction of arbitral tribunals

Section 1 of the Reply would apply to concurrent cases accepted by the relevant arbitral institutions prior to the effective date of this Reply, except in cases where no application to the people’s court to determine the validity of the arbitral agreement has been filed prior to the first hearing of the arbitral tribunal.

Section 4 of the Reply provides that where a case (i) was accepted concurrently by CIETAC and SHIAC (or SCIA) and (ii) a party had requested a people’s court to determine the validity of the arbitral agreement prior to the first hearing of the arbitral tribunal, the people’s court shall make a ruling pursuant to Section 1 of this Reply.

Nonetheless, if no application has been made to the court prior to the first hearing of the arbitral tribunal, the arbitral institution that first administered the dispute shall assume jurisdiction of said dispute.

The full text of the Reply (in Chinese) can be found at SHIAC’s website by following this link: http://www.shiac.org/ResourcesDetail.aspx?tid=39&aid=990&zt=3.

Conclusion

The Reply puts an end to any lingering uncertainty regarding jurisdictional issues arising from the CIETAC split.

It is observed that since early 2015, the people’s courts appear to have adopted a consistent approach in handling questions arising from the CIETAC split, as evidenced by a number of rulings, which were likely endorsed by the SPC. The Reply, with detailed guidance on how jurisdictional issues should be handled under different situations, is a step in the right direction towards restoring confidence in arbitration in mainland China.

N E W J A P A N E S E A R B I T R AT I O N C A S E L A W : T H E O S A K A D I S T R I C T C O U R T ’ S P R O -A R B I T R AT I O N R U L I N GBy Desmond Ang and Hiroko Nihei, O’Melveny & Myers

Introduction

The recently reported Osaka District Court Decision of 17 March 2015 (The Financial and Business Law Precedents (1471) 52 [2015]) (the “Osaka District Court Decision”) represents the Japanese courts’ pro-arbitration approach under the Arbitration Law in Japan (the “Arbitration Law”), which is UNCITRAL Model Law-based. In this decision, the Osaka District Court (the “Court”) refused to set aside a JCAA (defined below) award on the grounds that (a) the failure of the chairman of the tribunal―who was also a partner in an international law firm―to disclose his/her foreign colleague’s relationship with the claimant’s affiliate did not justify an annulment of the award; (b) the flaws in the factual and legal reasoning of the tribunal would not, in and of themselves, constitute a contravention of public policy; and (c) the alleged procedural irregularity was not grave enough to constitute a violation of due process.

Background

The Osaka District Court Decision concerns a contractual dispute between two American distributors (collectively, the “U.S. Parties”), on the one hand, and a Japanese manufacturer (the “Japanese Party”) and a Singapore company (the “Singapore Party,” and collectively, the “Asian Parties”), on the other hand, over a sales contract regarding packaged terminal air conditioners (“PTAC”) executed in 2002 (the “Sales Contract”) and two memoranda of understanding concluded in 2006 regarding new PTAC development (the “MOUs”). The Sales Contract was governed by Japanese law, but the MOUs did not contain a governing law clause.

In 2009, after the Japanese Party went through an organisational change, it decided to withdraw from the PTAC business; so, in 2010, the Asian Parties terminated the Sales Contract. A dispute subsequently arose between the U.S. Parties and the Asian Parties (details unknown) and, in 2011, arbitration was commenced by the Asian Parties against the U.S. Parties, under the auspices of the Osaka Office of the Japan Commercial Arbitration Association (“JCAA”), seeking a declaration that there was no breach of the Sales Contract and the MOUs by the Asian Parties (the “JCAA Arbitration”). The U.S. Parties counterclaimed seeking (a) declarations that the termination of the Sales Contract was illegal and that the U.S. Parties’ obligations under the MOUs had been discharged and (b) damages for breach of the Sales

http://www.shiac.org/ResourcesDetail.aspx%3Ftid%3D39%26aid%3D990%26zt%3D3

http://www.shiac.org/ResourcesDetail.aspx%3Ftid%3D39%26aid%3D990%26zt%3D3


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Contract and the MOUs. In 2014, a final award (the “Award”) was issued by a three-member tribunal (the “Tribunal”) (the details of the Award are unreported).

Dissatisfied with the Award, the U.S. Parties filed a motion with the Court to set aside the Award on three grounds: (1) the presiding arbitrator’s non-disclosure of conflicts of interest (Articles 44(1)(vi) and (viii) of the Arbitration Law), (2) the Tribunal’s erroneous interpretation of the Sales Contract (Article 44(1)(viii) of the Arbitration Law), and (3) the substantive and procedural errors regarding the Tribunal’s ruling on the MOUs (Articles 44(1)(iv), (vi), and (viii) of the Arbitration Law).

The relevant provisions of the Arbitration Law provide as follows:

Article 18. (Grounds for Challenge)

(1) A party may challenge an arbitrator:

(ii) if circumstances exist that give rise to justifiable doubts as to its impartiality or independence.

(4) An arbitrator, during the course of arbitral proceedings, shall without delay disclose any circumstances likely to give rise to justifiable doubts as to its impartiality or independence (unless the parties have already been informed of them by the arbitrator).

Article 44. (Setting Aside of Arbitral Award)

(1) A party may apply to a court to set aside the arbitral award when any of the following grounds are present:

(iv) the party making the application was unable to present its case in the arbitral proceedings;

(vi) the composition of the arbitral tribunal or the arbitral proceedings were not in accordance with the provisions of the laws of Japan (or where the parties have otherwise reached an agreement on matters concerning the provisions of the law that do not relate to the public policy, such agreement);

(viii) the content of the arbitral award is in conflict with the public policy or good morals of Japan.

(6) Where an application is made under paragraph (1), an arbitral award may be set aside by the court in the event that it finds any of the grounds described in each of the items under the same paragraph to be present …

Holding

Ground (1) The Presiding Arbitrator’s Non-disclosure of Conflicts of Interest

The chairman of the Tribunal (the “Chairman”) was a partner in the Singapore office of an international law firm (the “Law Firm”). While the JCAA Arbitration

was ongoing, a lawyer (the “S.F. Colleague”) who was representing a sister company of the Japanese Party (the “Sister Company”) in an anti-trust class action in a U.S. court (the “U.S. Class Action”) joined the San Francisco office of the Law Firm. The Chairman did not disclose this fact to the parties, and there was no challenge to the Chairman’s impartiality and independence during the JCAA Arbitration. However, during the annulment procedure, the U.S. Parties submitted, for the first time, that the Award should be set aside on the ground that the Chairman failed to disclose the S.F. Colleague’s move to the Law Firm. (How and when the U.S. Parties became aware of this fact is unreported.)

The Court admitted the possibility that the fact that the S.F. Colleague became a member of the same law firm as the Chairman could constitute circumstances likely to give rise to justifiable doubts as to the Chairman’s impartiality or independence which are subject to disclosure (Article 18(4) of the Arbitration Law). However, for the following three reasons, the Court ultimately found that the non-disclosed fact, mentioned above, neither constituted circumstances giving rise to justifiable doubts justifying challenge of the Chairman (Article 18(1)(ii) of the Arbitration Law) nor affected the outcome of the Award: (a) the Chairman and the S.F. Colleague belonged to different offices of the Law Firm and no exchange of information had been identified between them; (b) the JCAA Arbitration and the U.S. Class Action had no factual relevance and there was no overlap between the parties; and (c) the Chairman was neither involved in the U.S. Class Action nor given access to the information regarding the U.S. Class Action. The Court further pointed out the fact that the Chairman, in his/her declaration of impartiality and independence submitted at the time of the appointment, referred to the possibility that any of the Law Firm’s lawyers might in the future represent the parties or their affiliates in a case unrelated to the JCAA Arbitration, but that the U.S. Parties did not raise any objections. In light of these facts, the Court concluded that even if the Chairman’s failure to comply with the disclosure obligation would fall within the annulment ground under Article 44(1)(vi) of the Arbitration Law, it was not appropriate to set aside the Award because the flaw was insignificant (Article 44(6) of the Arbitration Law provides the Court with discretion to refuse to set aside an award even if such a ground could be established).

Ground (2) The Tribunal’s Erroneous Interpretation of the Sales Contract

In the Award, the Tribunal found that the Sales Contract did not fall within the Japanese legal notion of “continuous supply contract,” under which termination is strictly limited to exceptional cases.

The U.S. Parties submitted that the Tribunal’s finding was contrary to public policy because it was not based on established Japanese case law and that the Tribunal relied


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excessively on a literal construction of the Sales Contract.

The Court refused to set aside the Award on this ground because, in its view, the U.S. Parties were merely contesting the factual and legal reasoning of the Tribunal. Implicit in the Court’s reasoning is that flaws in the factual and legal reasoning in an award would not, in and of themselves, constitute a contravention of public policy.

Ground (3) The Substantive and Procedural Error regarding the Tribunal’s Ruling on the MOUs

The Tribunal further found that the Japanese Party had breached the MOUs (the Singapore Party was not a party thereto). The U.S. Parties’ damages claim, however, was dismissed by the Tribunal on the ground that, by failing to take any action for over a year regarding the breach of the MOUs, they had waived their right to seek damages or had exempted the Japanese Party from the damages claim.

The U.S. Parties submitted that (a) the Tribunal’s holding was contrary to public policy because it was a denial of fundamental property rights and (b) there was a breach of due process because the late submission of the Japanese Party’s arguments on the waiver and exemption issue deprived the U.S. Parties of the opportunity to rebut those arguments.

The Court rejected both arguments because (a) the U.S. Parties were not entitled to challenge the Tribunal’s factual and legal findings and (b) the U.S. Parties were given sufficient opportunity to present their case by cross-examining the Japanese Party’s expert witness at the hearing, by supplementing their own expert’s opinion, and by delivering additional written submissions.

Comments

There are three points to highlight.

First, this case is, to the authors’ knowledge, the first reported case in which a Japanese court ruled on the issue of an arbitrator’s alleged conflicts of interest under the current Arbitration Law. No detail, however, is provided in the judgment that would enable an assessment as to whether the S.F. Colleague’s representation of the Sister Company is regarded as a “significant commercial relationship” between the Law Firm and the Sister Company as provided in the Waivable Red and Orange Application Lists in the IBA Guidelines on Conflicts of Interest in International Arbitration (the “IBA Guidelines”). Nonetheless, the S.F. Colleague’s representation of the Sister Company would fall within the Orange List of the IBA Guidelines (Paragraph 3.2.1) which provides for disclosure in circumstances where “[t]he arbitrator’s law firm is currently rendering services to … an affiliate of one of the parties, without creating a significant commercial relationship for the law firm and without the involvement

of the arbitrator.” With regard to the relationship between non-disclosure of conflicts of interest and annulment of arbitral awards, the IBA Guidelines add a note that “[a] later challenge based on the fact that an arbitrator did not disclose such facts or circumstances should not result automatically in … a successful challenge to any award.” Consistent with the IBA Guidelines, the Court did not treat the Chairman’s non-disclosure itself as establishing a ground for annulment; rather the Court looked to (a) the relationship between the Chairman and the S.F. Colleague; (b) the relevance of the JCAA Arbitration to the U.S. Class Action, and (c) the Chairman’s involvement in the U.S. Class Action, and analysed whether these circumstances justified vacating the Award.

Although it is unclear from the judgment, it appears that the relationship between the Law Firm and the Japanese Party (including the Sister Company) in the Osaka District Court Decision was insignificant and one-off. In this light, the Court’s ruling on the challenge on the ground of the Chairman’s non-disclosure of conflicts of interest could be seen as a practical determination based on an understanding of how international law firms operate.

Second, the Court made it clear that it would not re-examine the merits of the case in the setting-aside procedure. This position is consistent with other Japanese precedents including the Tokyo District Court Decision of 28 July 2009 (H.T. (1304) 292 [2009]), which held that an award should not be set aside merely because the arbitral tribunal’s findings of fact or law were unreasonable. The Osaka District Court Decision is actually the latest addition to a series of arbitration-friendly rulings in Japan which have not been highly publicised abroad.

Third, the Court’s ruling on the due process challenge can be seen as a reaffirmation of Japanese courts’ strict approach toward the parties’ easy reliance on this annulment ground (Article 44(1)(iv) of the Arbitration Law). In the aforementioned Tokyo District Court Decision of 28 July 2009, the court declared that the due process ground should be interpreted as referring only to a grave violation of due process that completely deprived the parties of the opportunity to defend themselves, an obvious example of which was an award made in reliance upon a document to which the parties were denied access. The Court in the Osaka District Court Decision appears to share the same restrictive approach.

Conclusion

The Osaka District Court Decision was made, of course, based on the specific circumstances of that particular case. Still, this new case illustrates the Japanese courts’ utmost respect for arbitral tribunals’ decisions and their pro-arbitration approach toward setting-aside proceedings. We believe this decision will be welcomed by the international community.


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O N E - O N - O N E W I T H …A N I N T E R V I E W W I T H T E R E S A C H E N G S CBy Felicia Cheng, Squire Patton Boggs

Ms Teresa Cheng, SC is a well-respected arbitration heavyweight in Hong Kong. She is a member of Des Voeux Chambers, and a Chartered Arbitrator, Accredited Mediator and Chartered Engineer. She also sits as Recorder in the Court of First Instance, High Court, Hong Kong.

She has been involved in many of the key arbitration related court decisions in Hong Kong and she is well-known for acting in Democratic Republic of the Congo v FG Hemisphere.

As well as her work as advocate and arbitrator, she is appointed to many important positions in arbitration and government panels and commissions. She won the Gold Bauhinia Star in 2011 for her public service to Hong Kong.

Felicia Cheng, an associate at Squire Patton Boggs, spoke to Teresa in the context of the 30th anniversary of the HKIAC and her being Chairperson this year, discussing her long and illustrious career, as well as her goals for the HKIAC as Chairperson.

1. What made you become an engineer and what made you turn to the law? How did you become interested in arbitration?

Teresa chose to study engineering because she is more of a practical person, and prefers the practical over the theoretical. She studied civil engineering at King’s College. During that time, she took some courses in contract law, and John Uff, QC gave the lectures. It impressed her that he was an engineer, as well as a QC and arbitrator, and she thought that this would make a great combination for a career. This prompted her to study law and she did so part time in 3 years (whilst also qualifying / working as an engineer).

2. What type of arbitrations do you tend to work on? What percentage of your practice is acting as advocate versus sitting as arbitrator? Which do you prefer?

Teresa said it was natural that she started out doing mostly construction arbitration, but nowadays, she tends to do more arbitrations involving commercial disputes such as joint venture and shareholder disputes. Apart from arbitration, she also does some High Court litigation including judicial review, as well as appellate work.

Generally speaking, she tends to do more arbitrator work as compared to counsel work, about a 70:30 or 60:40 split.

Teresa likes both arbitrator and counsel work, but she feels counsel work is more taxing because as counsel, you need to plan more and think about what would happen in different scenarios. As an arbitrator, if you have good lawyers on both sides, they would have done the work, and it is a matter of balancing both sides and coming up with the decision.

3. You have been involved in many key arbitration decisions in Hong Kong. Which case do you think had the biggest impact on the law?

Teresa has been involved in many of the often cited arbitration decisions made in Hong Kong.

The key decisions she mentioned are as follows (grouped by topic):

Decisions concerning how an arbitration agreement is construed under the Model Law

Teresa was actually involved in two decisions that narrowly construed the scope of the arbitration agreement:

CA Pacific Forex v Lei Kuan Ieong [1999] 2 HKC 571. In this case, it was confirmed on appeal that arbitration agreements do not extend to bills of exchange unless there is a plain manifestation that the arbitration agreement in question so extends.

Liu Man Wai v Chevalier (Hong Kong) Ltd [2002] HKCU 782. In this more recent case, the first instance decision that there ought not to be a stay in favour of arbitration was upheld. It was held that the arbitration clause only covered disputes where the price adjustment had not been agreed; the plaintiff was claiming payment for variation works based on an agreed price. Thus, such dispute was not covered by the arbitration agreement.

Decisions regarding enforcement

Democratic Republic of the Congo v FG Hemisphere [2011] 4 HKC 151. Teresa is happy to discuss this case because despite being well known, it is often misread. It simply held that the award could not be enforced because of absolute State immunity and has nothing to do with the seat of arbitration.


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Shandong Hongri Acron Chemical Joint Stock v Petrochina International [2011] HKCU 1439. This was a case in which CIETAC wrote three letters post award. Whilst these letters were held not to be supplemental awards, the award itself was enforced.

Ng Fung Hong Ltd v ABC [1998] 1 HKC 213. It was held that s2GG of the old Arbitration Ordinance (Cap. 341) did not cover enforcement of Mainland awards in Hong Kong. This was a defeat for Teresa, but led to changes when an arrangement for mutual enforcement of arbitral awards was signed between the Mainland and Hong Kong in 1999.

Xiamen Xinjingdi Group v Eton Properties [2008] 6 HKC 287 – This case was a reminder that the enforcing court need not look into the merits (surprisingly there needed to be a case to explicitly say this). It was held that impossibility of performance of the award was not a public policy ground for refusal of enforcement, and in any event, the court found the impossibility argument to be misconceived on the facts.

Decisions regarding setting aside

Pacific China v Grand Pacific [2012] 3 HKC 498. This case concerned a party raising issues late in the day, which has due process issues. The award was not set aside.

Brunswick Bowling v Shanghai Zhonglu Industrial [2011] 1 HKLRD 707. This case is a reminder that the tribunal should not make its own assessment (on the facts, the tribunal had made its own assessment without allowing the respondent to present its case on Chinese contract law in response to claims made by the claimant), otherwise there will be a due process issue. Whilst setting aside was sought, ultimately the court refused to do so because it considered there had been no real impact on the result.

Decisions regarding anti-suit injunctions

Lucky Sun v Gainsmate (unreported, HCCT 12/2007, 2 October 2007, DHCJ L Chan). One of the early cases regarding anti-suit injunctions; the ex parte injunction stopping proceedings in the Mainland was ultimately dismissed, albeit the order that shares providing security for the Mainland freezing order be released was re-granted.

Oracle v CITIC (unreported, HCA 105/2012, 18 September 2013, Recorder A Ho, SC). Issues of forum non conveniens and lis alibi pendens were raised. The proceedings in Hong Kong were not stayed despite CIETAC arbitration and Mainland proceedings being on foot. It was held that the Mainland courts did not have exclusive jurisdiction over the matter and the Mainland was not a clearly more appropriate forum. The Hong Kong proceedings involved an additional party and agreement, and it was recognised that there would be difficulty enforcing the Mainland judgment in Hong Kong.

These cases are a reminder that court support of arbitration is required.

4. You are currently a recorder in the CFI. What are the key differences between sitting as arbitrator versus as judge? Which do you prefer?

Teresa describes the distinction between sitting as arbitrator versus judge as between private and public. Arbitration proceedings are less formal, as opposed to in court, where those attending might deem it inappropriate for a judge to approach issues informally and might then wonder whether the judge is taking the proceedings seriously. She also feels that there might be more scope to be interventionist in court proceedings. In arbitration proceedings, she finds that in any event, cross examination tends to be more focused and the one reason she would need to stop counsel is if he or she were asking a misleading question. There is also less scope for appeal in arbitration and thus, parties should be heard as far as possible, albeit within reason, as there is hardly any scope for the parties to have a second bite of the cherry. In her experience as arbitrator and judge so far, she prefers sitting as arbitrator, as the cases she works on in arbitration tend to be cross border and involve more complex issues including conflict of law and foreign law issues.

5. It is the 30th anniversary of the HKIAC and you are chairperson this year. What do you think are the major achievements of the HKIAC to date? What challenges does it face?

Teresa says there is no need for her to be shy when describing the achievements of the HKIAC and she believes the HKIAC has done a great job. It is truly a reputable regional arbitration centre. The secretariat provides quality service, and the chairperson is always a person well experienced in arbitration. Arbitrators are quality arbitrators and there is no shortage of experienced counsel in Hong Kong.

The HKIAC has organised events such as Hong Kong arbitration week and the HKIAC / ICCA summit in May, which have been emulated by other arbitration centres.

The challenge facing the HKIAC is the growing number of regional arbitration centres including in Seoul, Singapore, Kuala Lumpur and Shanghai, as well as CIETAC. Certainly none of these centres had a substantial presence in 1985, when HKIAC was first established, but they are all now working hard to improve. Whilst the arbitration pie is bigger, there is increasing competition from these centres.

Provided there is healthy competition, this challenge should actually bring opportunities to the HKIAC. What is meant by healthy competition is that centres should not criticise each other, for example, send the message to parties that they should not use a certain centre, but rather work together to improve and increase the range of


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services available for everyone.

Another challenge is addressing the misconceptions parties have regarding Hong Kong’s system of law. Not everyone knows about or understands one country, two systems. The message needs to be spread that Hong Kong is a common law system with the rule of law in order to give parties comfort in choosing arbitration in Hong Kong.

6. What are your goals for the HKIAC as chairperson? Is there anything the HKIAC or perhaps the Hong Kong Government could do to make Hong Kong a more attractive place for arbitration?

Teresa has two main aims:

a. Ensure the quality of arbitrators. Teresa believes in maintaining the light touch approach of the HKIAC. Indeed, it is not the extent of administration that affects whether awards are challenged. Instead, to reduce the chance of awards being challenged, it is important to ensure the quality of arbitrators, ensuring that they are well qualified and well trained and provide well-reasoned and enforceable awards. One scheme that the HKIAC has put in place is confidential feedback forms for parties to fill in regarding arbitrators. Some detractors say feedback from such forms will not be useful because it is only losing parties who will complain and thus, the reliability of such complaints is an issue. However, Teresa believes there are aspects of arbitrators’ conduct that parties will discuss whether or not they have won or lost. Furthermore, some criticism of arbitrator’s conduct can easily be dealt with, for example, by a quick word with the arbitrator himself or herself.

b. Encourage and nurture young practitioners with roots in Hong Kong. Teresa believes this is necessary because “we can’t just rely on people flying in”. This is the only way in which there can be sustainable growth in the arbitration sector in Hong Kong. The HKIAC’s HK45 initiative has been very successful in terms of providing a forum for young practitioners to interact socially and to bolster their practice.

Further, linked to Hong Kong being a common law system with the rule of law, Teresa hopes that Hong Kong can remain a place in which hot topical arbitration issues can be debated.

What the government can do is provide more support to the HKIAC, both in material respects (the HKIAC operates as a charity) and in terms of collaborating with the HKIAC in promoting arbitration services.

7. Given the 2013 HKIAC Administered Arbitration Rules have been in place for over one and a half years now, how well do you think they have

worked? Do you think the HKIAC should maintain its light touch approach? More specifically, any comments on how the consolidation / joinder provisions have been used? How often are the emergency arbitrator provisions used?

As discussed above, Teresa does believe the HKIAC should maintain its light touch approach.

As for whether the consolidation / joinder provisions have worked, Teresa admits that this can be a tricky issue, but she believes that the proceedings committee, which is the committee that makes the decision whether to consolidate or join, does a good job of keeping a “corporate memory” or precedent system to ensure that the decision is made consistently when similar circumstances arise. The decision, being made by a committee, is a joint decision, made after debate and the members are all very experienced in arbitration.

8. You are often cited as the first Asian woman to have been President of CIArb. Do you think more Asian women have become leaders in the arbitration field and what would you say to encourage young practitioners in the field?

Teresa was very keen to give advice and encourage young practitioners.

She advises young practitioners to seek experience one step at a time, first perhaps to make a simple interlocutory application and next, as co-counsel, for example, to examine or cross examine witnesses. Experience as counsel is important to get yourself known and the arbitrator appointments will follow, albeit they will take a bit more time. Attending a careful selection of seminars is also important and they give young practitioners a chance to meet other practitioners and again, get themselves known.

Teresa also advises importantly, to get your first appointment as arbitrator right. If you get it wrong, it could be the end. If in doubt, don’t feel shy of asking a more experienced arbitrator, particularly on how to deal with a procedural matter, which might not easily be answered by a textbook.

As for advice to women, Teresa says that if ever an inappropriate comment is made, just ignore it. Concentrate only on your own career and what is important.

9. Clearly, public service is important to you and you were awarded the Gold Bauhinia Star in 2011. Do you think it is important for more lawyers to become involved and what has been your most rewarding experience in this regard?

Teresa encourages not only lawyers, but also professionals generally, to become more involved.


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She finds the most rewarding aspect of her community work on various boards such as Transport Advisory Board and the Housing Authority is the fact that she learns a lot about how things work. Actually, it might not be as easy to resolve problems as it might appear to an outsider.

She has also done a lot of work at various tribunals such as the Copyright Tribunal and Immigration Tribunal. The work at these tribunals is rewarding because she gains further experience in different areas of the law.

The most rewarding experience was her work with the Provisional Minimum Wage Commission. This is because she was able to make use of her arbitration and mediation skills to achieve a unanimous consensus between the various camps such as business, unions, academia and government on the minimum wage. She was able to use her arbitration skills in terms of collecting and analysing evidence to obtain views from the various camps and she

was able to use her mediation skills in order to achieve the unanimous consensus.

10. As well as your work as advocate and arbitrator, you are appointed to many important positions in arbitration and government panels and commissions. How do you find the time? What motivates you in your work?

Teresa laughs when asked this question and quotes: “If you want something done, get a busy person!”

Teresa says that her motivation is because she enjoys what she is doing. Once she has made the decision to do something, it is simply a matter of planning and focusing. She gives the example of her current work with the Air Transport Licensing Authority. Whilst on the surface, it appears tedious, actually many interesting issues have arisen and she enjoys the challenge.

H K I A C / H K 4 5 N E W S L E T T E R C O M M I T T E EEditors: Felicia Cheng, Squire Patton Boggs

Sheila Ahuja, Allen & Overy

Desmond Ang, O’Melveny & Myers

Reporters: Dominic Afzali, Allen & Overy

Colin Ballantine, Herbert Smith Freehills

Andrew Chin, Baker & McKenzie

Joanne Lau, Allen & Overy

James MacKinnon, Herbert Smith Freehills

Hiroko Nihei, O’Melveny & Myers

Kirtan Prasad, Allen & Overy

Gitta Satryani, Herbert Smith Freehills

Vee Vian Thien, Allen & Overy

Friven Yeoh, O’Melveny & Myers

Yan Zhang, O’Melveny & Myers

EditorialAssistants: Gen Bai, HKIAC

Cynthia Claytor, Thomson Reuters

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